SMSFs do better than you may think

Self-managed superannuation funds may be underestimated, but they are an important segment of the super sector.

Credit Suisse equity strategist Hasan Tevfik. Picture: Renee Nowytarger.

There is a risk that self-managed superannuation funds are underestimated in Australia. In dollar terms, they are the most important segment of the super sector. Based on recent readings — and the statistics have a notorious time lag — they have at least $654 billion in assets under management and they control about 30 per cent of all superannuation assets.

To look at those numbers another way, SMSFs control about 16 per cent of the Australian sharemarket.

Today, the sector is approaching 1.1 million members, with the actual number of funds nearing 600,000. Statistically, the average number of members in an SMSF is just a smidgen over two — usually a couple or sometimes a wider unit such as a couple and adult family members.

If these patterns remain stable then the number of funds may reach one million in five years and the number of members will pass the two million mark.

There has been criticism on the issue of asset allocation that SMSF operators do not fare as well as major funds, but there are many leaks in this argument.

Hasan Tevfik, Australian equity strategist at Credit Suisse, has taken the time to study the sector and this year he up-ended the notion that SMSFs were petrified in cash and did not actively invest in the market.

As Tevfik explained in a recent note, “it is true that income-seeking investors, such as selfies (SMSFs), have little option in their search for yield. Deposit rates are at record lows, as are rental yields. By comparison the Australian equity dividend yield is about 200 basis points higher. For selfies, equities are the only game in town.”

Moreover, in the wake of the global financial crisis, SMSFs’ appetite for cash and term deposits proved lucrative. Figures from actuarial firm Rice Warner show that although average SMSF investment returns in 2008 and 2009 retreated by minus 4.4 per cent and minus 5.3 per cent, respectively, those numbers compared favourably with larger Australian Prudential Regulation Authority-regulated funds, where average returns were minus 8.3 per cent and minus 11.7 per cent.

According to a recent report from the SMSF Association, the sector’s average asset allocation at March strongly focused on Australian shares (30.8 per cent), cash, term deposits and fixed interest (24.5 per cent), and property (15.8 per cent).

SMSF Association chief executive John Maroney recently told The Australian: “There is a compelling case for SMSFs to diversify their asset allocation to give them access to different asset classes such as infrastructure, overseas shares, and bonds (Australian and overseas) … but let’s get one thing straight: by any yardstick, the SMSF sector is performing well. Growth in terms of the number of funds, members, and funds under management is healthy. SMSF investment returns are competitive with other superannuation sectors.”